Edward Herman:
July 19, 2001

                 THE THREAT OF GLOBALIZATION

                     Edward S. Herman(*)

   Globalization is both an active process of corporate expansion
across borders and a structure of cross-border facilities and
economic linkages that has been steadily growing and changing as
the process gathers steam. Like its conceptual partner "free
trade," globalization is also an ideology, whose function is to
reduce any resistance to the process by making it seem both highly
beneficent and unstoppable.

   And as with free trade, while globalization may sometimes yield
economic benefits, both the process and economic-political regime
it is helping bring about threaten progressive ends, and should be
recognized as such and fought at every level. Admittedly this is a
formidable task, as the economic and political power of its
beneficiaries, and its momentum, are great and contesting it seems
an almost utopian undertaking. But globalization has its
vulnerabilities, and attacking it intellectually, at the local
level of plant abandonments and moves, as well as at the national
political level can help build understanding and support for a
larger oppositional movement.

  Globalization as Ideology

   Globalization is just one of an array of concepts and arguing
points that have been mobilized to advance the corporate agenda.
Others have been deregulation and getting government off our backs,
balancing the budget, cutting back entitlements (non-corporate),
and free trade.

  Like free trade, globalization has an aura of virtue. Just as
"freedom" must be good, so globalization hints at internationalism
and solidarity between countries, as opposed to nationalism and
protectionism, which have negative connotations. The possibility
that cross-border trade and investment might be economically
damaging to the weaker party, or that they might erode democratic
controls in both the stronger and weaker countries, is excluded
from consideration by mainstream economists and pundits.[fn 1] It
is also unthinkable in the mainstream that the contest between free
trade and globalization, on the one hand, and "protectionism," on
the other, might be reworded as a struggle between "protection"--of
transnational corporate (TNC) rights--versus the "freedom" of
democratic governments to regulate in the interests of domestic
non-corporate constituencies.

  As an ideology, globalization connotes not only freedom and
internationalism, but, as it helps realize the benefits of free
trade, and thus comparative advantage and the division of labor, it
also supposedly enhances efficiency and productivity. Because of
these virtues, and the alleged inability of governments to halt
"progress," globalization is widely perceived as beyond human
control, which further weakens resistance.

The Economic Failure of Globalization

  As the globalization process has been engineered by corporate
elites, and serves their interests, they have successfully conveyed
the impression that globalization is not only inevitable but has
been a great success. This is fallacious. Even ignoring for the
moment its distributional effects, globalization has been marked by
substantial declines in rates of output, productivity, and
investment growth. Under the new regime of enhanced financial
mobility and power, with greater volatility of financial markets
and increased risk, real interest rates have risen substantially.
The average rate of the G-7 countries (U.S., Britain, France,
Italy, Germany, Canada and Japan) has gone from 0.4 percent, 1971-
82, to 4.6 percent, 1983-94.[fn 2] This has discouraged long term
investment in new plant and equipment and stimulated spending on
the re-equipment of old facilities along with a large volume of
essentially financial transactions--mergers, buybacks of stock,
financial maneuvers, and speculative activities. This may help
explain why overall productivity growth [fn 3] in the countries
that are members of the OECD fell from 3.3%, 1960-73 to 0.8%, 1973-
95, or by some 75 percent. Gross fixed investment fell from 6.1%,
1959-1970, to roughly 3.1% thereafter, or by half. OECD country
annual rates of growth of real GDP fell from 4.8%, 1959-1970 to
2.8%, 1971-94, or by 42 percent.

  But the elites have done well despite the slackened productivity
growth. Because globalization has helped keep wages down, while
increasing real interest rates, the upper 5 percent of households
have been able to skim off a large fraction of the reduced
productivity gains, thereby permitting elite incomes and stock
market values to rise rapidly. But it was a different story for the
global majority. Income inequality rose markedly both within and
between countries. In the United States, despite a 35 percent
increase in productivity between 1973 and 1995, the median real
wage rate was lower in the latter year. Inequality rose to levels
of 70 years earlier, and underemployment, job insecurity, benefit
loss, and worker speedup under "lean" production systems all
increased. [fn 4 Insecurity is functional. As Alan Greenspan
complacently explained to Congress in 1997, wage rates were
stagnant in this country because worker insecurity was high. [fn 5]
That this high insecurity level reduced the well-being of the
affected workers did not bother Greenspan, or Congress and the
mainstream media.

  The gap in incomes between the 20 percent of the world's
population in the richest and poorest countries has grown from 30
to 1 in 1960 to 82 to 1 in 1995, and Third World conditions have in
many respects worsened. Per capita incomes have fallen in more than
70 countries over the past 20 years; some 3 billion people--half
the world's population, live on under two dollars a day; and 800
million suffer from malnutrition. [fn 6] In the Third World
unemployment and underemployment are rampant, massive poverty
exists side-by-side with growing elite affluence, and 75 million
people a year or more seeking asylum or employment in the North, as
Third World governments allow virtually unrestricted capital flight
and seek no options but to attract foreign investment. [fn 7]

  The new global order has also been characterized by increased
financial volatility, and from the Third World debt crisis of the
early 1980s to the Mexican breakdown of 1994-95 to the current
Asian debacle,  financial crises have become more and more
threatening. With increasing privatization and deregulation, the
discrepancy between the power of unregulated financial forces and
that of governments and regulatory bodies increases and the
potential for a global breakdown steadily enlarges.

   Only an elite perspective permits this record to be regarded as
an economic success.

Globalization as an Attack on Democracy

   The globalization of recent decades was never a democratic
choice by the peoples of the world--the process has been business
driven, by business strategies and tactics, for business ends.
Governments have helped, by incremental policy actions, and by
larger actions that were often taken in secret, without national
debate and discussion of where the entire process was taking the
community. In the case of some major actions advancing the
globalization process, like passing the North American Free Trade
Agreement (NAFTA) or joining the European Monetary Union (EMU),
publics have been subjected to massive propaganda campaigns by the
interested business-media elites. In the United States, public
opinion polls showed the general public against NAFTA even after
incessant propaganda, but the mass media supported it, [fn 8] and
it was passed. In Europe as well, polls have shown persistent
majorities opposed to the introduction of the Euro, but a powerful
elite supports it, so that it moves forward.

   This undemocratic process, carried out within a democratic
facade, is consistent with the distribution of benefits and costs
of globalization, and the fact that globalization has been a tool
serving elite interests. Globalization has also steadily weakened
democracy, partly as a result of unplanned effects, but also
because the containment of labor costs and scaling down of the
welfare state has required the business minority to establish firm
control of the state and remove its capacity to respond to the
demands of the majority. The mix of deliberate and unplanned
elements in globalization's antidemocratic thrust can be seen in
each aspect of the attack process.

  The assault on labor.  One of the main objectives of TNC movement
abroad has been to tap cheaper labor sources. Labor is often
cheapest, and least prone to cause employer problems, in
authoritarian states that curb unions and enter into virtual joint
venture arrangements with foreign capital, as in Suharto's
Indonesia and PRI's Mexico. Capital moves to such friendly
investment climes in an arbitrage process, shifting resources from
the more expensive to the less costly locale, in a process that
penalizes and thereby weakens democracy.

  The actual shift of capital abroad, and the use of the external
option to drive hard bargains at home, has weakened labor. Labor
has also been weakened by deliberate government policies of tight
money and restrictive budget policies to contain inflation, at the
expense of high unemployment. These policies, and the incessant
focus on labor market "flexibility" as the solution to the
unemployment problem, reflect a corporate and antilabor policy
agenda, fully institutionalized. There have even been more open and
direct attacks on organized labor--both Reagan and Thatcher engaged
in union busting, and the latter was quite explicit in her aim to
weaken labor as a political force. [fn 9] Democracy, according to
pluralistic theory, is said to rest on the existence of
intermediate groups, like labor organizations, that can bargain and
work on behalf of an otherwise atomized population. The deliberate
weakening of such groups is thus an attack on democracy.

   The ideological campaign. In the United States, Britain, Canada,
and other countries the business community has also mounted a
sustained ideological campaign  to make their preferred policies
part of common understanding. These campaigns have proceeded in
parallel with globalization and have been remarkably similar,
reflecting the global flow of ideology and overlapping sources of
funding. The favored neoliberal ideology pushes the idea that the
market can do it all, that government is a burden and threat, and
that deregulation and privatization are inherently good and
inevitable. It presses an extreme individualism and the value of
"personal responsibility," which is highly advantageous to
corporate power, leaving bargaining between large firms and
isolated individuals. Collective and community values, the threat
of externalities and ecological damage from unconstrained business
growth, free market instability--all are shunted aside in this
ideological system. This ideological campaign has been highly
successful, because vast sums of business money fed to
intellectuals and think-tanks, and business domination of the mass
media, has allowed their views to prevail. Heritage Foundation
leader Edwin Feulner has described the strategy of his corporate-
funded and globally linked thinktank as analogous to Procter &
Gamble's in selling soap--saturate the market with messages that
overwhelm any that are less well funded. [fn 10] But this is a
corruption of democracy; it is a bought market of ideas, not a free
market of ideas.

   Capturing or immobilizing governments. The business community
has also mounted a powerful effort to dominate governments--either
by capture or by limiting their ability to serve ordinary citizens.
Globalization has contributed to this effort, partly by the
arbitraging process mentioned earlier, which favors authoritarian
rule. Apart from this, by enlarging business profits and weakening
labor it has shifted the balance of power further toward business,
so that political parties have been even more decisively influenced
by business money in elections. In the United States, it is
notorious that Mr. Clinton has sought and received enormous sums
from business and serves their interests almost exclusively, with
only token efforts on behalf of the major nonbusiness
constituencies of the Democratic Party. The globalizing corporate
media have added their growing strength to the advance of
neoliberal ideology and opposition to any vestiges of social
democracy, making social democratic policies difficult to
implement. The Murdoch effect on British elections, and the current
Murdoch-Blair connection illustrates the point.[fn 11]

   Another well-known and important antidemocratic force is the
power of global financial markets to limit political options.
Social democratic policies make for an unfavorable investment
climate. Businesses will therefore respond to politicians and acts
serving ordinary citizens with threatened or actual exit. Financial
market effects on exchange and interest rates can be extremely
rapid and damaging to the economy. Spokespersons for the new global
economy actually brag about the ability of capital to penalize
"unsound" policies, and the fact that money capital now rules.[fn
12]

   These business efforts, aided and validated by the IMF and by
media support, regularly cause social democrats to retreat to
policies acceptable to the rulers. Thus, in country after country
social democratic parties have accepted neoliberalism, despite the
contrary preferences of great majorities of their voting
constituencies.[fn 13] But this means that nominal democracy is no
longer able to serve ordinary citizens, making elections
meaningless and democracy empty of substance. This helps explain
why half or more of eligible U.S. voters no longer participate in
national elections.

    Supra-national limits on democracy--the New (TNC)
Protectionism. Not satisfied with this level of political control,
the business community has pushed for international agreements, and
policy actions by the IMF and World Bank, that further encroach on
the ability of democratic polities to act on behalf of their
constituencies.

   These agreements and the demands of the international financial
institutions invariably call for precisely the policies desired by
the TNC community. The EMU conditions give primacy to budget
constraints and inflation control, in accord with the neoliberal
and corporate agenda. GATT, the WTO, and the NAFTA agreement also
give top priority to corporate investor and intellectual property
rights, to which all other considerations must give way. In the
early 1980s, the IMF and World Bank took advantage of the Third
World debt crisis and used their leverage with numerous distressed
Third World borrowers to force their acceptance of Structural
Adjustment Programs. These forced the borrowing countries to agree
to give first priority to external debt repayment, private as well
as government; it compelled them to adapt austerity
programs of tight money and budget cutbacks focusing heavily on
social expenditures affecting the poor and ordinary citizens; it
forced a stress on exports, which help generate foreign
exchange to allow debt repayment and that more closely integrate
the borrower's economy into the global system; and it stressed
privatization, allegedly in the interest of efficiency, but serving
both to help balance the budget without tax increases and to
provide openings for TNC investment in the troubled economy. The
IMF is doing the same in Asia today.

  A second characteristic of the new agreements and IMF-World Bank
actions is their denial of democratic rights to non-corporate
citizens and elected governments. These are subordinated to the
rights of corporate investors,  the superior class of global
citizens with priority over all others and beneficiaries of the New
TNC Protectionism. In the NAFTA agreement, governments are denied
in advance the right to take on new functions; any not asserted now
are left to the private sector and to the superior class of
citizens. In these agreements, also, and even more aggressively in
the Multilateral Agreement on Investment now under consideration,
the global TNCs have no responsibilities and none can be imposed on
them. They can fire people, abandon communities, fatally damage the
environment, push  local companies out of business, and purvey
cultural trash at their full discretion. They can or will be able
to sue governments, and disagreements are to be settled by
unelected panels outside the control of democratic governments.

  A third characteristic of the new agreements and IMF-World Bank
actions is that they rest not only on neoliberal theory but on a
false reading of recent experience and economic history. As noted
earlier, globalization so far has been a productivity failure, a
social disaster, and a threat to stability. The claim of its
proponents that free trade is the route to economic growth is also
confuted by longer historic experience: no country, past or
present, has taken off into sustained economic growth and moved
from economic backwardness to modernity  without large-scale
government protection and subsidization of infant industries and
other modes of insulation from domination by powerful outsiders.
This includes Great Britain, the United States, Japan, Germany,
South Korea and Taiwan, all highly protectionist in the earlier
takeoff phases of their growth process.[fn 14] The governments and
institutions bargaining on behalf of the TNCs today, through the
IMF, World Bank, WTO and NAFTA, have been able to remove these
modes of protection from less developed countries. This threatens
them with extensive takeovers from abroad, thoroughgoing
integration into foreign economic systems as "branch plant
economies," preservation in a state of dependence and
underdevelopment, and most particularly,  an inability to protect
their majorities from the ravages of neoliberal top-down
development priorities.

Concluding Note

  In sum, we are in the midst of an antidemocratic
counterrevolution in which globalization and its imperatives are
being used to weaken popular and elected authority in favor of a
system of domination by super-citizens, the TNCs. This process sows
the seeds of its own destruction, as it serves a small global
minority, damages the majority, breeds financial instability, and
exacerbates the environmental crisis. Its destructive tendencies
are likely to produce an explosion if the process is not contained
and democracy is not rehabilitated.

   Halting this antidemocratic juggernaut will be difficult, not
only because of the power of its beneficiaries, but also because it
operates within the framework of nominally democratic structures
and musters plausible arguments.  But these arguments are self-
serving and wrong, and should be vigorously contested. An agenda
should be advanced that serves ordinary citizens rather than the
TNCs and financial institutions. Negatively, this agenda will
include strenuous opposition to all supranational arrangements that
take power out of the hands of democratic governments to serve some
alleged economic need. Positively, the agenda requires support for
the imposition of serious limits and responsibilities on TNCs,
including capital controls and other deterrents to financial
speculation. Pursuit of this agenda is going to require a
combination of understanding and effective organization of the
large majority who are the victims of globalization.
 

                           Notes

   1. Many leftists also strenuously deny that globalization is
having a damaging effect on the power of the state. This denial
seems to be based mainly on fears that a pessimistic analysis will
render workers apathetic and destroy the socialist project. The
deniers stress that the state still works well in serving the
transnational corporate community; they ignore the possibility that
such efficient service is quite compatible with globalization
weakening the power of the state to do things that TNCs and the
financial community oppose. For statements of the denial school,
see Ellen Wood, "'Globalization' or 'Globaloney'?," Monthly Review,
Feb. 1997; William Tabb, "Globalization is An Issue, the Power of
Capital is The Issue," Monthly Review, June 1997; Linda Weiss, The
Myth of the Powerless State (Cornell, 1998). For a rebuttal, see
Richard DuBoff and Edward Herman, "A Critique of Tabb on
Globalization, " Monthly Review, Nov. 1997.

   2. The data in this paragraph is taken from David Felix, "Asia
and the Crisis of Financial Globalization," in Robert
Pollin....1998.

   3. More precisely, total factor productivity growth, which is
the weighted average of growth in labor and capital productivity.

   4. See Kim Moody, Workers In A Lean World (Verso, 1997), esp.
chap. 5.

   5. In his testimony on monetary policy before congress on July
22, 1997, Greenspan noted that the proportion of workers in large
companies fearful of layoffs rose from 25 to 46 between 1991 and
1996.

   6. Ignacio Ramonet, "The Politics of Hunger," Le Monde
Diplomatique, Nov. 1998; UN Development Program, Human Development
Report 1998 (New York, Sept. 1998).

   7. On the underrated problem of uncontrolled capital flight in
Latin America, see David Felix, "Debt Crisis Adjustment in Latin
America: Have the Hardships Been Necessary?," Washington
University, St. Louis, Working Paper 170, Sept. 1992.

  8. Edward Herman, "Mexican Meltdown," Z Magazine, Sept. 1995.

  9. See Margaret Thatcher, The Downing Street Years
(Harper/Collins, 1993), p. 676 and passim.

 10. Alex Carey, Taking the Risk Out of Democracy (University of
New South Wales, 1995), pp. 106-7.

 11. Rupert Murdoch, who controls a third of the print media
circulation in Britain, was widely credited with the Tory election
triumph over Labour in 1990, by virtue of his papers' frenzied
attacks on the latter. Tony Blair, the new head of the Labour
party, traveled to Australia to visit with Murdoch, persuaded him
to reconsider his support, and succeeded in getting Murdoch's
papers to support Labour in the l997 election campaign. Blair
unilaterally repudiated the Labour pledge to seek a
decentralization of the media, and his policies have received
accolades from the right: Margaret Thatcher's favorite think-tank,
the Adam Smith Institute, described Blair's as  a "remarkably
promising start." (Daily Mail, Dec. 10, 1997). Canadian business
columnist Peter Cook refers to Blair as "the man who made the
country safe for Thatcherism" (Globe and Mail, May 15, 1998).

    12. Walter Wriston, former CEO of Citicorp, has repeatedly
stressed that 200,000 financial market monitors in trading rooms
control national monetary and fiscal policies "through a kind of
global plebiscite." "Decline of the Central Bankers," New York
Times, Sept. 20, 1992.

    13. William Robinson, Promoting Polyarchy: Globalization, US
Intervention and Hegemony, Cambridge, England: Cambridge University
Press, 1996; Jochen Hippler, ed., The Democratisation of
Disempowerment, London: Pluto, 1995; Edward Herman, "The End of
Democracy?," Z Magazine, Sept. 1993.

    14. Alice Amsden, Asia's Next Giant (Oxford, 1989); Robert
Wade, Governing the Market (Princeton, 1990).

-------------------
(*)Edward S. Herman, Professor Emeritus of Finance, Wharton School, University of Pennsylvania, is the author of a number of books, including Manufacturing Consent (1988, with Noam Chomsky), Triumph of the Market (1996), and The Global Media (1997, with Robert McChesney).